Universal Technical Institute, Inc. UTI ended fiscal 2015 on a disappointing note as it failed to meet its projection of a rebound in student starts in the fourth quarter. The company missed earnings estimates and reported a wider-than-expected decline in revenues in the quarter. In fact, the company expects these dismal trends to continue into 2016 as well.
Adjusted loss of 9 cents per share in fourth-quarter fiscal 2015 was wider than the Zacks Consensus Estimate of a loss of a cent. This also compared unfavorably to adjusted earnings per share of 6 cents in the prior-year quarter.
Adjusted earnings exclude the impact of goodwill impairment expense but includes costs related to the opening of Long Beach campus in the quarter.
Quarter in Detail
In spite of surpassing the Zacks Consensus Estimate of $89 million, revenues of $90.7 million decreased 4.9% from the prior-year quarter. The decline in revenues was also wider than the company’s guidance of a 3–4% decline. Despite an increase in tuition rates, revenues declined due to lower total enrollments.
The top line excluded $4.6 million of revenues related to the loan program during the quarter, slightly lower than $4.8 million in the prior-year quarter. The company intends to include this amount as students pay back their debt.
Universal Technical reported a 7.9% decline in average undergraduate full-time enrollment in the fourth quarter. The decline in total enrollment was due to a lower student population at the beginning of the quarter. Student starts declined 6.3% in the quarter, thereby failing to meet the company’s expectations of new student enrollment growth.
Universal Technical’s enrollments have been sluggish for several quarters now due to regulatory challenges, and changes and competition in the higher education industry. However, revenue per student improved 4.4% in the quarter on the back of higher tuition fees.
Excluding the costs related to Long Beach campus and goodwill impairment, operating income was $1.8 million, down 53.8% year over year. Operating margin stands at 2.0%, down 210 basis points from prior year quarter. The weak performance was due to lower revenues, higher advertising expenses, and costs related to opening of the Long Beach, CA campus, partially offset by lower compensation costs.
Fiscal 2015
Universal Technical reported adjusted loss of 6 cents per share in fiscal 2015, missing the Zacks Consensus Estimate of 7 cents. Adjusted loss also compared unfavorably to adjusted earnings per share of 8 cents in the prior-year quarter due to a weak top line.
Missing the Zacks Consensus Estimate of $365 million, revenues of $362.7 million decreased 4.2% from a year ago.
Fiscal 2016 Outlook
Given its present enrollment scenario, the company expects fiscal 2016 student starts to increase in low single digits. Total enrollment is expected to decline in mid-to-high single digits. Revenue is expected to decline about 2%. In fiscal 2016, the company intends to ramp up its investment in order to drive students starts growth, which is expected to hurt operating income and EBITDA. Capital expenditures are expected in the range of $19.5 million to $20.5 million.
Universal Technical carries a Zacks Rank #4 (Sell).
Stocks to Consider
Some better-ranked stocks in the education industry include Lincoln Educational Services Corp. LINC, New Oriental Education & Technology Group Inc. EDU and TAL Education Group XRS, each sporting a Zacks Rank #1 (Strong Buy).
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